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Strategic Trade and Privatization Policies in Bilateral Mixed Markets

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  • Xu, Lili
  • Lee, Sang-Ho
  • Wang, Leonard

Abstract

We consider strategic trade and privatization policies in international bilateral mixed markets where a domestic state-owned enterprise competes with both domestic and foreign private enterprises in each country. We examine the strategic interaction of two countries’ optimal choices of privatization and trade policies with different combinations of production subsidy and import tariff, and find some interesting policy implications. First, a higher social welfare can be achieved with the appropriate degree of privatization when both governments adopt a production subsidy only. Second, FTA can work as a coordination device to solve the prisoner’s dilemma problem. Third, the maximum-revenue privatization, combined with zero subsidy and higher tariff, is higher than optimum-welfare privatization. Finally, the international bilateral equilibrium needs less degree of privatization and lower subsidy rate, even though it is jointly suboptimal from the viewpoint of global welfare.

Suggested Citation

  • Xu, Lili & Lee, Sang-Ho & Wang, Leonard, 2017. "Strategic Trade and Privatization Policies in Bilateral Mixed Markets," MPRA Paper 80340, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80340
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    More about this item

    Keywords

    strategic privatization; international bilateral mixed market; industrial policy; optimal tariff;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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